banks can keep in reserve a good and not an evil in furnishing a redemption agent and a reserve? That is what I am getting at. I have introduced these facts, not with reference to the gold question, but to discuss this question: If the Government is relieved from current redemption, and it is put on the banks, and the banks have this immense amount of gold, is not the assumption of "current redemption" by the banks entirely safe?

Assuming what I have stated is correct, is it not a good and not an evil to continue $200,000,000 of legal-tender notes so that they can be used as available funds by banks to supply and transfer balances rather than to be at the expense of transporting gold?

Mr. FAIRCHILD. It would not be necessary to transport the gold any more than we do at New York at the present time. There they have to put the gold in charge of the clearing house, and they have simply a piece of paper to represent it. It is a mere matter of ingenuity.

Mr. WALKER. In the absence of this $200,000,000 of legal tender they would have to accumulate this $600,000,000 of gold?

Mr. FAIRCHILD. Yes.

Mr. WALKER. Now, if that is so, would it not be a good to the country not to require them to accumulate the $600,000,000, but be satisfied with $400,000,000, and let them hold $200,000,000 of greenbacks in the place of $200,000,000 gold?

Mr. FAIRCHILD. Who is behind the $200,000,000 in greenbacks?

Mr. WALKER. The banks. They have to redeem them the same as their own currency.

Mr. FAIRCHILD. Where do they get the gold for that?

Mr. WALKER. The same as to redeem any other currency notes of the banks-out of the $621,000,000 of gold.

Mr. Cox. Where do they get the $421,000,000?

Mr. WALKER. It is "visible" in the country now.

TOO MUCH GOLD REQUIRED.

MR. WALKER. As I understand it, Mr. Fairchild, the bill of the commission would destroy all the Treasury notes and legal tender notes; it would so use the silver dollars that they could not be had to use in the cash reserves of banks; and this for the purpose of making it impracticable for banks to get any other money but gold to redeem their notes with. That would be the effect of it?

Mr. FAIRCHILD. That would be the effect of it.

Mr. WALKER. How much gold would it take to furnish all cash reserves now held by national banks?

Mr. FAIRCHILD. I have not figured on that.

Mr. WALKER. The report of the Comptroller of the Currency says that $389,000,000 in round numbers in cash reserve is held in the national banks, and that in the State banks there is $152,000,000 cash reserve, and he estimates there is about 12 per cent of the State banks that do not report to the Comptroller. That would make the probable cash reserve now in the banks $562,883,000. The question is whether that amount in gold would not overload the banks, whether it is not an unreasonable expectation, and even if the expectation could be realized whether it would not be an exceedingly uneconomical procedure to compel the banks to keep $562,000,000 of gold, upon which the country must lose interest. That is to say, "a sufficiency is enough." The moment they get gold to more than what makes absolute safety the people are losing 6 per cent interest on the unnecessary surplus.

B & C- -14

Mr. FAIRCHILD. Certainly.

Mr. WALKER. We want enough, and have both gone on the idea that a sufficiency is enough; but is not what is provided for in the commission bill an unreasonable amount?

Mr. FAIRCHILD. Possibly it is. I do not think it is an unwise amount.

"TRUE BANK CURRENCY" BETTER THAN "BOND SECURED CURRENCY"-GAGE BILL "TENTATIVE."

The CHAIRMAN. Mr. Secretary, you say your bill (H. R. 5181), which you have drawn and presented to the committee," is not final, but rather a tentative step;" and again you say, "it will lead to conditions ultimately desirable." In order to know the virtue and value of the bill and the desirability of entering upon its enactment, it is necessary for the committee to know what you have in view and what you would call the completed whole.

Secretary GAGE. It would be a condition of affairs where there was a system of bank notes issued in the United States made safe to the people without the deposit in the hands of a trustee of specific security therefor, wisely limited and restricted by law so as to reduce to the minimum the possible abuses which might grow out of such a responsible duty, and eliminating substantially or entirely the Government of the United States from its present method of paying its debts by giving another debt in payment.

The CHAIRMAN. That completes the answer?
Secretary GAGE. I think it does.

The CHAIRMAN. Mr. Gage, in reply to the question as to what your scheme was tentative to, and to what you looked as final, you made a statement which is in the record. Upon reading your answer to the question, are you satisfied with it? [See above.]

Secretary GAGE. Yes, sir; it might be somewhat extended, but I think the idea is covered in that.

The CHAIRMAN. Mr. Fairchild, you listened to the statement of Mr. Gage. Do you agree with his idea?

Mr. FAIRCHILD. Yes.

TRUE BANK CURRENCY.

The CHAIRMAN. I desire to ask a question or two as to a "true bank currency" for the purpose of getting it in the record, so the people reading the record will know what we are talking about. A bank keeps at all times, in the regular conduct of its business, assets more than equal to every obligation against it, including its currency notes? Secretary GAGE. Yes, sir.

The CHAIRMAN. Secondly, a bank pays out every dollar it puts in circulation upon the receipt from the person taking it of ample security for its redemption?

Secretary GAGE. That is, in good practice and theory.

The CHAIRMAN. Thirdly, the currency of a bank is redeemed at its place of redemption by its general "current funds"-which are titles to products, and which are in the hands of another bank that acts as its agent in redeeming its notes, and not in actual coin?

Secretary GAGE. What do you mean by "current funds?"

The CHAIRMAN. I will put it differently. In the current funds that it has on deposit in its correspondent bank for the purpose of meeting all its obligations, including its currency notes?

Secretary GAGE. Yes, sir; that is true.

The CHAIRMAN. On the other hand, a (1) government gets nothing in the regular course of its business when it pays out its own currency, and (2) the coin must be constantly carted into the vaults to redeem, and carted out in redemption of paper money.

Secretary GAGE. The first part of the statement is correct, that when the Government pays out it does not acquire anything which it keeps to serve as an ultimate redemption for the note it pays out. The note it pays out is in consideration for services already rendered or for goods and commodities already received and used.

The CHAIRMAN. If you will turn to page 175 of the Treasurer's report for 1897 you will find that there was redeemed at the Treasury last year $113,000,000, total redemption of national-bank notes. In the second column of the table you will see there was $33,000,000 of money that was actually sent out by express-that is to say, about one-third. The rest of the redemption was in checks on the subtreasuries sent to banks, as I understand?

Secretary GAGE. Yes, sir.

The CHAIRMAN. Now, it is equipped with funds, either greenbacks or coin; if it was coin redemption, that coin had to be carted into the subtreasury from some source in order to meet the balance of $80,000,000 redemption?

Secretary GAGE. That would be supplied in some manner.

The CHAIRMAN. Then the answer to my question, of course, is in the affirmative-that is, essentially true.

Secretary GAGE. That is substantially correct.

The CHAIRMAN. The currency issued by a government redeeming government currency can not be redeemed in general current fundswhich are, of course, the titles to products-for it has none and can get none. The bank must send its specie to redeem its notes with, or the government must get specie by taxation or selling bonds-one or the other method?

Secretary GAGE. I see no other avenues.

The CHAIRMAN. I want to call your attention to the taxes proposed in the bill prepared by Secretary Gage and Ex-Secretary Fairchild. Mr. BROSIUS. I would like to ask if you mean that these propositions embody the theory of banking?

The CHAIRMAN. And the practice.

Mr. BROSIUS. Do you mean to say these propositions express the actual practice of banks always?

The CHAIRMAN. I do.

Mr. BROSIUS. I can not give my unqualified assent now, time I would like some explanation of these propositions. The CHAIRMAN. Now is the time to record it.

BANK ASSETS.

and at some

Mr. BROSIUS. You say a bank keeps at all times, in the regular conduct of its business, assets more than equal to every obligation against it, including currency notes. If that is so, no bank could ever break up, and banks are breaking up.

The CHAIRMAN. I do not mean insolvent banks; I mean sound banks. Mr. BROSIUS. That is an exception to the proposition.

The CHAIRMAN. It is implied in the questions.

Mr. BROSIUS. In the second place, you say the bank pays out every dollar it puts in circulation upon the receipt, from the person taking it,

of ample security for its redemption. If that is true there would be no bad debts. If all the money paid out is secured by ample securities, when are notes discounted by a bank not good at all?

The CHAIRMAN. I am speaking of a sound bank.

Mr. BROSIUS. Then, if it is the theory of banking, it is all right. The CHAIRMAN. No; it is not the theory only; it is the actual practice.

Mr. BROSIUS. In the average of banks?

SECURITIES TAKEN FOR BANK CURRENCY.

The CHAIRMAN. No; I mean to say that where a bank pays out its currency notes it always takes from the man who receives the currency what it considers to be sound securities-it may be mistaken, but what it considers are at the time sound securities-for more than it pays out in currency notes.

Mr. BROSIUS. That is right, but that is a totally different proposition.

TRUE BANK CURRENCY REDEEMED BY THE MAN WHO TAKES IT.

The CHAIRMAN. No, sir; the second proposition is that the man who borrows, as a matter of fact, in good banking, himself redeems the notes that he takes from the bank. That would come in a little later, but I put it in now: Namely, the banks take the personal time note of the borrower on ninety days, and if its currency is averaged to be redeemed once in every ninety-two days, four times a year, the man who took the currency for the proceeds of the discounted note actually deposits the funds in the bank which redeems that currency. That is not theoretical, but practical, banking. These propositions are absolutely true, and can be found in the active banking of France, Germany, England, Scotland, Canada, and every other country that has a sound and true banking currency; and you can not have sound banking where the public Treasury is the redeemer.

NORMAL CIRULATION.

Mr. NEWLANDS. Mr. Secretary, Mr. Fowler, in one of his questions, used the term "normal circulation." What do you understand by that? Secretary GAGE. I do not understand anything by it. I do not know what is normal, and I do not believe anybody does or can tell; the law of supply and demand operates, and that determines what is normal. The CHAIRMAN. And whatever that shows is taken out is normal? Secretary GAGE. I think so.

Mr. FOWLER. Then it does mean something?

The CHAIRMAN. It means that whatever circulation averages to be taken out is thus shown to be normal.

Secretary GAGE. With that correction of my expression as to what the word meant, I should say yes.

ELASTICITY OF CURRENCY.

Mr. NEWLANDS. It is expected that the circulation that these bills call for will have the element of elasticity?

Secretary GAGE. It is expected it will.

Mr. NEWLANDS. As a matter of fact, is not this bank circulation practically an extension of the check and deposit system?

Secretary GAGE. That is what it is.

Mr. NEWLANDS. A practical extension of the check and deposit system?

BANK CURRENCY CHECKS.

Secretary GAGE. Substantially; a bank note issued by a banker is nothing more than a memorandum check which will draw money from the bank at any time at the pleasure of the holder.

Mr. NEWLANDS. It is a check payable to bearer?
Secretary GAGE. Yes, sir; it is, substantially.

Mr. JOHNSON. Do I understand you to say that an elastic currency, one which would expand and contract with the varying needs of trade, is as readily obtained on bond security as under some other form of security-as under security issued against the assets of the bank with a guaranty fund?

Secretary GAGE. I do not say that the secured circulation is as useful as the unsecured; that is another side of the question. I do not think it is useful to tie up capital needlessly.

Mr. JOHNSON. That is the point I wished to develop.

WALKER BILL.

The CHAIRMAN. I want to say to Mr. Fairchild and Secretary Gage that the bill prepared by myself meets exactly the conditions that you have suggested ought to be met in the banks you have designated in a proper banking system whenever you can get it.

Suppose there was no paper money in existence except that issued by the banks, and suppose the demands of the people call for $1,000,000,000 of paper money, as now, and the banks issued it and kept that amount in circulation. We will put it in round numbers. The banks would make on that what their rates of loans and discounts were on their general business.

Mr. FAIRCHILD. Yes.

BOND-SECURED CURRENCY ROBS A BANK OF CAPITAL.

Mr. WALKER. If they are not making any money on that, then the banks are losing that much that they otherwise would make under the English or Scotch or French or German or Suffolk or State bank system, or under the Walker bill. Is not that true?

Mr. FAIRCHILD. Of course; that is a mathematical statement; that if they do not loan the money then they are not making the interest on it.

SECURE ON GOLD STANDARD.

Mr. WALKER. Mr. Gage, do you understand that France is absolutely secure on the gold standard?

Secretary GAGE. Yes; I think so.

Mr. WALKER. Do you not think Germany is absolutely secure on the gold standard?

Secretary GAGE. I believe so; but it does not make so much difference to me what Germany or France are on as it does what we are on, because our contracts are domestic and relate to all the trade and commerce which we get.

Mr. WALKER. I make the statement that the bill drawn by me puts us on precisely the same standard, in precisely the same manner, with